Brazil Ending Topsy-Turvy Citrus Season

Published: Tuesday, January 15, 2013 at 11:49 p.m.

Last Modified: Tuesday, January 15, 2013 at 11:49 p.m.

WINTER HAVEN | The citrus industry in Brazil is finishing a difficult 2012-13 season marked by low farm prices, declining production and high orange juice inventories, which resulted in an estimated 40 million boxes of oranges left unharvested on the tree.

Facts

Economists attributed the topsy-turvy Brazilian market to the government's orange price support programs.

Despite the global trade in orange juice, however, the oversupply in Brazil has not yet affected farm prices in Florida or retail OJ prices in the U.S., judging by trading on the U.S. futures market.

"It seems like the futures market doesn't assimilate Brazilian data," said Tom Spreen, emeritus professor of agricultural economics at the University of Florida in Gainesville and a leading authority on citrus economics. "Events there do not seem to move the market as much as here (Florida)."

The Brazilian orange harvest runs roughly from June to December or early January while the Florida citrus harvest runs from October to June.

Brazil accounts for about half the annual global orange crop and OJ production while Florida supplies about a third of the world's orange juice. Normally a high global inventory would put downward pressure on the farm price of oranges in both countries, which would also drive down retail OJ prices.

But a small 2012-13 Florida orange crop of just 142 million boxes, a 3 percent decline from the previous season, has kept farm prices strong and retail OJ prices near record highs. The opposite happened in Brazil.

A Jan. 8 report from the Center for Advanced Studies on Applied Economics (CEPEA) is Sao Paulo, which monitors Brazilian agriculture, put the 2012-13 orange crop at 364 million boxes, a 15 percent decline from the previous season. Despite the smaller crop, Brazilian farm prices fell.

"The 2012-13 Brazilian orange season has been characterized by low prices paid to producers and large fruits losses," the report said. "This scenario is attributed to the high inventories of orange juice of Brazilian processors, which reduced the demand (for) the fruit."

Spreen and Matt Salois, chief economist at the Bartow-based Florida Department of Citrus, attributed the topsy-turvy Brazilian market to the government's orange price support programs, which set minimum farm prices for the country's oranges, similar to grain support programs in the U.S.

In return for the price supports, Spreen said, the government required OJ processors to hold larger inventories, a strategy to bolster OJ demand.

The effect in 2012-13 was to push Brazilian OJ inventories to unprecedented high levels, Spreen and Salois said.

That's equivalent to one year's OJ production in Florida, Spreen and Salois agreed.

Because of those high inventories, Brazilian processors told growers they could not use much of the 2012-13 crop, particularly Hamlin oranges, which are picked in the early months of the season.

Florida growers also grow Hamlins, which are picked from October to March.

The U.S. Department of Agriculture estimated 40 million boxes of Brazilian Hamlins were left unharvested last year for lack of a buyer. That was unprecedented for Brazilian growers, said Tom Stopyra, a crop adviser working in Fort Pierce who previously lived in Brazil and worked in citrus there.

"A friend of mine said never, ever have they (processors) told us they don't have room for our fruit," Stopyra said.

Another Brazilian friend, a medium-sized grower, told Stopyra he sold his Hamlins only because he had a long-term contract with a processor. But Stopyra's friend also told him the processor reneged on the contract price and paid a lower amount.

The Brazilian orange market recovered toward the end of the 2012-13 season because processors bought all the late-season Valencia oranges, which have a higher quality juice, CEPEA and Stopyra agreed.

But prices for mid-season oranges were still the lowest since 2001, the CEPEA report said.

<p>WINTER HAVEN | The citrus industry in Brazil is finishing a difficult 2012-13 season marked by low farm prices, declining production and high orange juice inventories, which resulted in an estimated 40 million boxes of oranges left unharvested on the tree.</p><p>Despite the global trade in orange juice, however, the oversupply in Brazil has not yet affected farm prices in Florida or retail OJ prices in the U.S., judging by trading on the U.S. futures market.</p><p>"It seems like the futures market doesn't assimilate Brazilian data," said Tom Spreen, emeritus professor of agricultural economics at the University of Florida in Gainesville and a leading authority on citrus economics. "Events there do not seem to move the market as much as here (Florida)."</p><p>The Brazilian orange harvest runs roughly from June to December or early January while the Florida citrus harvest runs from October to June.</p><p>Brazil accounts for about half the annual global orange crop and OJ production while Florida supplies about a third of the world's orange juice. Normally a high global inventory would put downward pressure on the farm price of oranges in both countries, which would also drive down retail OJ prices.</p><p>But a small 2012-13 Florida orange crop of just 142 million boxes, a 3 percent decline from the previous season, has kept farm prices strong and retail OJ prices near record highs. The opposite happened in Brazil.</p><p>A Jan. 8 report from the Center for Advanced Studies on Applied Economics (CEPEA) is Sao Paulo, which monitors Brazilian agriculture, put the 2012-13 orange crop at 364 million boxes, a 15 percent decline from the previous season. Despite the smaller crop, Brazilian farm prices fell.</p><p>"The 2012-13 Brazilian orange season has been characterized by low prices paid to producers and large fruits losses," the report said. "This scenario is attributed to the high inventories of orange juice of Brazilian processors, which reduced the demand (for) the fruit."</p><p>Spreen and Matt Salois, chief economist at the Bartow-based Florida Department of Citrus, attributed the topsy-turvy Brazilian market to the government's orange price support programs, which set minimum farm prices for the country's oranges, similar to grain support programs in the U.S.</p><p>In return for the price supports, Spreen said, the government required OJ processors to hold larger inventories, a strategy to bolster OJ demand.</p><p>The effect in 2012-13 was to push Brazilian OJ inventories to unprecedented high levels, Spreen and Salois said.</p><p>CEPEA reported Brazilian processors have current estimated inventories of 662,400 metric tons of frozen concentrated orange juice.</p><p>That's equivalent to one year's OJ production in Florida, Spreen and Salois agreed.</p><p>Because of those high inventories, Brazilian processors told growers they could not use much of the 2012-13 crop, particularly Hamlin oranges, which are picked in the early months of the season.</p><p>Florida growers also grow Hamlins, which are picked from October to March.</p><p>The U.S. Department of Agriculture estimated 40 million boxes of Brazilian Hamlins were left unharvested last year for lack of a buyer. That was unprecedented for Brazilian growers, said Tom Stopyra, a crop adviser working in Fort Pierce who previously lived in Brazil and worked in citrus there.</p><p>"A friend of mine said never, ever have they (processors) told us they don't have room for our fruit," Stopyra said.</p><p>Another Brazilian friend, a medium-sized grower, told Stopyra he sold his Hamlins only because he had a long-term contract with a processor. But Stopyra's friend also told him the processor reneged on the contract price and paid a lower amount.</p><p>The Brazilian orange market recovered toward the end of the 2012-13 season because processors bought all the late-season Valencia oranges, which have a higher quality juice, CEPEA and Stopyra agreed.</p><p>But prices for mid-season oranges were still the lowest since 2001, the CEPEA report said.</p>